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A goods and services tax (GST) ministerial panel, led by Assam finance minister Himanta Biswa Sarma, is not supporting a proposal for a sugar cess to compensate cane farmers. It does favour a rate reduction on ethanol, from 18 per cent now to 12 per cent.

The panel will wait for the Attorney General’s opinion before taking a view on whether it is constitutionally possible to levy a separate cess under GST for sugar. The report will be put before the GST Council at a meeting scheduled on July 21. The five-member panel also has Uttar Pradesh finance minister Rajesh Agrawal, Maharashtra’s Sudhir Mungatiwar, Kerala’s Thomas Isaac and Tamil Nadu’s fisheries minister, D Jayakumar.

The Group of Ministers (GoM) feels that after fixing a Minimum Support Price for sugar at Rs 29 a kg, payment arrears due by mills to cane farmers have come down by Rs 50 billion, to Rs 180 billion. “Considering this positive development, we do not think there is a case for levying cess on sugar at the moment,” said Sarma on Wednesday.

However, the GoM might look at the option of levying a one per cent agriculture cess on luxury goods. Proceeds from the levy, estimated at Rs 67 billion a year, would flow into a separate fund to be utilised for this sector. The panel had looked at some ways to raise revenue for sugarcane farmers. Such as restricting the imposition of a cess to luxury or demerit items or whether to go for a one per cent GST rate hike across all slabs, for farmers’ welfare.

The GST Council in its meeting on May 4 took up the proposal from the ministry of food and public distribution to impose a sugar levy of Rs 1 a kg to compensate sugarcane farmers. This evoked protest from the governments of Kerala, West Bengal, Karnataka and Andhra Pradesh. The committee was constituted to deliberate on the matter.

As many as 13 different cesses had been abolished to bring in GST — Swachh Bharat cess, rubber cess, Krishi kalyan cess, tea cess, etc. “The Central Government has taken this step in stages, so that it is easier to fit various goods and services in different tax slabs for GST,” IT had said last year.

“Imposition of a specific sugar cess could open the floodgates for other commodity-specific cesses which were subsumed just a year before. While GST is a key revenue generator, it should not be used as a tool to alleviate sector/commodity related issues, as that would lead to significant changes in the GST structure,” said M S Mani, partner at consultancy Deloitte India.

Prior to GST rollout on July 1, 2017, a cess was levied and collected under the Sugar Cess Act, 1982, to finance the Sugar Development Fund.